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Housing markets get discussed in the media mostly through the channel of prices. Rising prices are considered good for the economy. They can connote increased sales, which would lead to more construction and real estate-related jobs. They also give homeowners more equity in their homes, and the consequent “wealth effect” – studies show personal spending jumps when people perceive an increase in their wealth – can benefit the economy.

But there’s a darker side to rising home prices. They harm affordability, particularly for first-time homebuyers. Since the collapse of the housing bubble, this group of potential purchasers has not returned to the market at the historical level of 2006. Because first-time homebuyers allow sellers to purchase bigger homes, their absence has blunted the impact of rising prices; the Bureau of Economic Analysis reports that residential housing investment remains lower than the depths of any housing crash over the past 40 years.

Housing affordability is a major problem in the Golden State. The California Association of Retailers’ most recent Housing Affordability Index (HAI) shows that only 30 percent of the state’s households can afford to purchase an average-priced home in their area. Read more